Dysfunctional Non-Market Institutions and the Market
20 Pages Posted: 12 Apr 2004 Last revised: 16 Oct 2022
Date Written: July 1988
Abstract
There is a widespread belief that when significant market failure occurs, there are strong incentives for non-market institutions to develop which go at least part of the way to remedying the deficiency. We demonstrate that this functionalist position is not in general valid. In particular, we examine a situation where insurance is characterized by moral hazard. We show that when market insurance is provided, supplementary mutual assistance between family and friends (unobservable to market insurers) -- a form of non-market institution -- will occur and may be harmful. This example suggests that non-market institutions can arise spontaneously even though they are dysfunctional.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Equilibrium in Competitive Insurance Markets with Moral Hazard
-
Moral Hazard and Non-Exclusive Contracts
By Alberto Bisin and Danilo Guaitoli
-
Incentives and Government Relief for Risk
By Louis Kaplow
-
Can Financial Markets Be Tapped to Help Poor People Cope with Weather Risks?
By Jerry R. Skees, Panos Varangis, ...
-
Recent Work on Business Cycles in Historical Perspective: Review of Theories and Evidence